Tag Archives: business insurance

The Employers Liability (Compulsory Insurance) Act 1969 makes is a legal requirement for UK businesses to have an employers’ liability policy in place if they employ any staff. That sounds nice and simple, but of course there are always grey areas and lots of questions that people will have regarding what actually constitutes an employee. In this article we hope to shed some light on a few of the most common areas of uncertainty.

Most public bodies are not required to have employers’ liability cover and family businesses where the only staff are close family members are also exempt. Other than that, all private businesses in the UK must have a policy in place if they employ anyone.

The Need To Define What Is Meant By An ‘Employee’
You know you have to have insurance for all employees, but does this include the person who works for you a few hours a week or on a casual basis or on a contract? And what about volunteers or work experience people?

There are certain things you can use to help judge whether someone would be classed as an employee for the purposes of liability cover. The requirement for insurance is if you have a contract with someone. However, this may not be quite as straightforward as it sounds. You may be fully employing someone, taking tax and national insurance, but not have got round to issuing a written contract. The written contract is not what matters in this case, it is about the contractual arrangement. So this can be a purely verbal arrangement, or even just an implied contract. What is comes down to is the reality of the arrangement you have with the person who does work for you and a lot of it is about the extent to which you control their work.

Situations Where You May Need Insurance:

If you exercise direct control over the work they carry out, telling them where to work and what to do.

If you pay them through PAYE rather than an invoice, deducting income tax and national insurance contributions.

If they are treated no differently to other permanent staff that you directly employ.

If your company pays for their tools, work materials and uniforms.

If the employee does not have the right to find someone else to undertake their work if they are unable to do it.

Situations Where You May Not Require Insurance:

People working for you on a voluntary basis, or students on a work experience or training programme.

People from whom you do not deduct income tax or national insurance.

Freelancers or contractors who also work for other people, who do not have to work for you and who supply their own equipment or work materials.

People who are able to arrange an alternative person to undertake their work if they are unable to do it.

Bear in mind that none of the above are absolute guarantees one way of the other and if you are in doubt you should seek legal advice. You can read more details of what the law says on the government website: www.hse.gov.uk

The cost of your public liability cover is going to depend to a large extent on the nature and size of your business. Not surprisingly, the greater the perceived risk, the more your premiums will cost. The price will also increase if the sort of claims likely to be made are more serious and substantial.

Insurers base their costs on their own calculations about the odds of having to pay out and the amount that claims could amount to. They use data from actual claims to work out the risk involved in different types of businesses. If you work in an inherently risky business, this will be reflected in your insurance costs. Similarly, if you run a large business with a substantial turnover, that will cost more than a policy for a small business or self employed person.

There are ways in which you can influence how much you pay. First and foremost of course is to compare quotes so you know you are getting good value. Then you should be able to decide what level of liability cover you need. Clearly there will be a difference in what you pay if you want £10million worth of cover, compared to if you were happy with £5million.

Sometimes the level of cover you need will be decided by external factors, such as minimum levels set by companies that you do work for. If you do contract work for other organisations or companies it is not unusual for them to specify what level of public liability insurance you need to have. If you don’t have that level of cover you will not be considered for the work.

You need to re realistic when deciding what level of cover you need. A policy offering £5million might sound like a lot of money but a claim from serious injury or death can very quickly mount up to significant sums of money. Having millions of pounds worth of cover does not mean that your policy is going to cost a lot of money. bear in mind that the chances of you actually having to make such a claim are very small, which is part of the insurer’s calculations.

There may also be an option to decide on an excess for the policy. If you opt to accept a higher excess then the cost of your policy will be lower.

If you are starting up a new business there will be an enormous list of things you have to think about, and one area you need to give consideration to is insurance. The type and amount of insurance you will require will depend on the nature of the business you are starting. The first thing is to have a good understanding of what each type of insurance is for and whether it is a legal requirement for you to have any. You will then be in a much better position to consider your own situation and what insurances you are going to need.

Is Any Insurance Compulsory?

The main form of business insurance that some companies have to have by law is employee liability insurance. This is a requirement under the Employers Liability (Compulsory Insurance) Act of 1969 and you need to have this if you employ any staff other than yourself. There are exceptions if you only employ direct close family members, but other than that only certain public bodies and organisations are exempt.

All other forms of insurance are optional, apart from from people working in a few particular professions. For example, accountants and solicitors need to have professional indemnity insurance and horse riding businesses need to have public liability cover.

What Is Liability Insurance?

There is often confusion about what liability insurance is and the different names and types of cover available. Basically there are two types of cover you need to understand. The first is the employers liability protection, which is compulsory and discussed above. This is to protect your staff and to protect you against claims for illness, illness, etc. You have to have at least £5million worth of cover for this, but most policies offer £10million.

The other type of liability policy is public liability insurance, which is also known as third party cover. This is optional and is intended to protect you against claims from third parties, in other words anyone other than your employees. Typical examples of claims are from customers or members of the public being injured or having property damaged. This can range from tripping up on your premises to one of your team accidentally breaking something while working in a customer’s home.

The question to ask yourself about public liability cover is whether you will have anyone coming onto your place of work or whether you or your staff will be working on other people’s property or in public areas. If either of these is the case, you would be well advised to have a plan in place to guard against such claims.

Other Insurances

Building and contents insurances are things you are likely to be already familiar with. You will need these to cover any place of work that you occupy. An additional consideration if you are engaged in sales of products is stock cover to reimburse you for the loss of your stock in the event of a fire, etc. Your normal building or contents policy will not cover you for replacing your stock.

Professional indemnity insurance is highly recommended if you provide professional advice to clients in any form. If you were found to offer inaccurate or misleading advice and a client suffered a loss as a result, they could claim against you. Related to this is product liability protection, which is about claims arising from the sale of faulty goods. This may be needed even if you do not manufacture the goods yourself. Retailers or wholesalers can also be held responsible in certain circumstances.

Conclusions

If you are starting your own business in a small way, such as working for yourself from home and not employing anyone else, you may well manage without any insurance at all. However, if you provide professional advice, work somewhere other than at home, have visitors to your place of work or go onto clients’ properties, you would be well advised to have some basic protection in place.

Always compare quotes from several insurers before making any decisions.